A Guide to Equipment Insurance
What is Equipment Insurance?
From retail stores to large-scale manufacturers, most businesses depend on equipment to stay operational. If any of those vital pieces of equipment breakdown, those businesses could be looking at significant costs to repair or replace that equipment.
Equipment insurance (commonly referred to as equipment breakdown insurance) can mitigate the risk of lost revenue by covering the cost of repair, lost income, and other expenses incurred because of a breakdown.
As beneficial as equipment insurance can be, finding the right policy can be daunting. This guide will cover just about everything you’ll need to know before you get started.
Disclaimer: The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or business. It is only intended to provide education.
Do I Need Equipment Insurance?
Before you start to look for equipment insurance, you need to assess if you need equipment insurance. That’s not always as straightforward as it would seem, however.
Sometimes, the decision to buy equipment insurance isn’t the equipment owner’s to make as certain organizations (such as the FMSCA) and most lenders will require proof of insurance coverage up to a certain amount. Those who aren’t required to buy equipment insurance should ask themselves these questions to determine if it’s right for them:
1. Does your equipment cost more than the capital you have readily available?
2. Do you rent your equipment to customers?
3. Is your equipment prone to theft?
4. Does the production gained from this equipment make up a large sum of your income?
5. Is your location exposed to natural disasters often?
6. Is your equipment on the road often?
If you answered yes to any of these questions, you’ll probably need equipment insurance.
What are the Types of Insurance?
Equipment insurance coverage is typically split into two categories: property and liability. Coverage that falls under the property category covers costs that are incurred when equipment breaks or is stolen. Liability coverage covers harm to others from the equipment and is usually reserved for more mobile equipment such as trucks or tractors.
How Much Coverage do I Need?
“How much coverage do I need?” is the perpetual question for anyone looking to insure their equipment. Ultimately, finding the optimal coverage is both about prioritizing what you can live with in exchange for cheaper premiums, and what’s available to you at an affordable price.
That said, there are a few absolute must-have coverage options for most businesses. At minimum, equipment insurance should cover:
1. The fair market value of the equipment.
2. Any operational risks your business is actually likely to encounter. Each industry has different risks and paying higher premiums for coverage on things that don’t apply to your business could costs you money in the long run.
3. Third party liability if your equipment could harm those around it.
4. Any legal, organizational, or financial requirements. For example the FMSCA requires that trucks have at least $750K in liability coverage while banks and other lenders typically require one million in liability coverage.
If you’re considering coverage beyond the minimum suggested or required amount, you should always speak with an insurance agent or other licensed professional. An insurance agent that specializes in your industry will understand the legal requirements you’ll need to satisfy as well as general best practices.
What Does a Lender Look for in a Policy?
If you’re financing your equipment, chances are good that your lender will require that you insure the equipment as part of the agreement. Usually, lenders will have specific coverage requirements for different types of equipment.
While the requirements may differ across lenders, you can expect most lenders to require a certificate of insurance (usually an accord form) and have listed them as the certificate holder if you’re getting an equipment loan or EFA.
An accord form lists the details of the policy such as the property/liability coverage and deductible. Lenders usually ask for accord forms to verify that you’ve taken out a policy with the required coverage, and to ensure that they’re listed as the certificate holder/loss payee.
Since lenders are shown as the certificate holder/loss payee, they’ll receive the payout if the equipment is damaged before the loan is paid in full; you’ll still be required to make any remaining payments.
How Much Does Equipment Insurance Cost?
How much an insurance policy will cost depends on a lot of factors. Insurers will account for the type of equipment, its primary use – and the amount and type of coverage requested.
You can generally assume that the premium will rise with the price of the equipment and that liability insurance will usually cost more than property insurance.
What Should I Look for in an Insurer?
In a perfect world, your insurer should specialize in your industry and offer policies with low premiums, low deductibles, and excellent coverage. While that may seem like a pipe dream to some, it’s likely that an insurer that specializes in your industry will offer better deals.
Insurers that know your industry will understand its best practices, any associated legal or financial requirements, and what coverage is important for which jobs. They’re often the best bet because they know what to look for.